Equipment financing for your business

Your business equipment financing options

There are different types of business loans available to suit a range of scenarios. Here are some common financing options.

An equipment loan

Taking out an equipment loan (also known as a chattel mortgage) can be an effective way to finance business equipment purchases, especially if it’s important to you for the business to own the asset from the outset.

Businesses can usually get a loan for the full cost of the goods (no upfront deposit) with the asset itself serving as security for the loan. Generally, the interest you pay plus the depreciation of the asset is tax deductible to the extent the asset is used in your business.

The advantage of a vehicle or equipment loan is that it doesn’t tie up all your funds and generally doesn’t require additional security, enabling you to use your available cash and credit lines to generate income. Ownership passes to you immediately and your bank registers a goods mortgage over the asset.

An equipment loan can be tailored to suit your business’ cash flow, with a range of repayment options. You can also choose to reduce the loan amount and the related finance costs by adding some equity through a deposit or trade-in.

A finance lease arrangement

Leasing also allows you to get the latest equipment and vehicles with no capital outlay.

Your bank owns the asset and leases it to you for an agreed period. The rentals are structured with a residual value, and give you options at the end of the lease period. The lease payments may be claimed as a tax deduction, opens in new window, to the extent the asset is used in the business.

The advantage of having a residual value is that your monthly payments will be lower, placing less strain on your cash flow. However, if you want to eventually own the asset, you can make an offer to purchase (plus GST).

A hire purchase agreement

If you want to own the latest equipment and vehicles but preserve your available cash, then a hire purchase agreement might suit you. With a hire purchase agreement, your bank buys the equipment you need and hires it to your business for an agreed period.

Like an equipment loan, a hire purchase agreement doesn’t tie up available cash and generally doesn’t require additional security. Similar to the treatment under the equipment loan, depreciation of the asset and the interest portion of any lease repayment may be tax deductible. Please obtain your own independent tax advice.

Cash flow considerations

Knowing how your business will be impacted when you take out finance equipment is important. Using our business loan repayment calculator can help you understand repayment structures on the funds you borrow. You should also prepare a cash flow forecast with your accountant to see how the new financing will affect your bottom line.

If your business is affected by seasonal cash flow variations you’ll need to structure your finance lease, hire purchase and equipment loan repayments to suit your business’ anticipated cash flow.

Knowing how and when your equipment can generate income can help you determine the best way of paying for it. You should also assess the expected productive life of an asset. This way you won’t have to finish paying for an asset beyond its useful life or pay for a piece of equipment too quickly, putting stress on your cash flow.

Talk to your accountant and NAB banker to ensure you get the right equipment finance package tailored to your budget and business needs.